The Chicago real estate market has endured a lot of ups and downs this year—and with each new report, the market is picking up, slowing down, or not moving at all. Lots of potential buyers are left wondering if this is the time, if the time already passed, or the best buyer’s market has yet to come.
The opinion of the herd says buyers should wait to buy Chicago real estate. I, on the other hand, have found that simply following the popular opinion never fares as well financially. I’m better off sitting down and looking at the facts that have been generated by professionals who evaluate economic conditions in and outside the box.
As we all know, today’s market has changed drastically. The herd may be saying that no one is buying Chicago real estate right now, but I would argue the opposite. The savvy, sophisticated financial-types are purchasing real estate, because they understand the current dynamic and how it will lead to increased property values in the years ahead. Here are a few signs and signals that now is the time to buy:
1. Following the Federal Reserve
The first thing to look at to understand the current economic environment is what the Federal Reserve is doing and what the ramifications of its actions are. Right now, the Federal Reserve is introducing an inflationary bias in monetary policy, to maintain a annual rate of increase in the inflation level of 2%. This is expected to heighten economic uncertainty—what if it breaches 2%? What if unemployment increases to 8.5% (not unheard of) but inflation reaches 3%? This new approach from the Fed means the value of our dollars could now be at their peak compared to coming years.
That’s why those savvy buyers that are making real estate purchases now. As the rate of inflation and interest rates go up, so do commodities. And real estate is a commodity.
2. Benefits from Long-Term Investments
Four years ago, realtors left and right were suggesting to clients that they buy real estate, flip it and make a fast, quick buck. And I realize that’s a tough decision to weigh when the buzz is that there will be a huge payoff. The herd mentality was that this is how real estate transactions were supposed to work. But even then, I recommended that buying real estate for flipping—especially Chicago new construction—wasn’t the right strategy for buyers. Since the stock market was tanking, the answer I received was that real estate was the place to make a buck.
If you’ve been shopping Chicago homes for sale and want to find a home to live in for the long term, I believe this is the most appropriate time to buy. Not to flip. Buyers who are able to make a good down payment and have an excellent FICO score are in a great position to purchase property and invest in the future. Putting your money into an investment like real estate means the government can’t touch it, plus you’ll benefit from tax deductions from your mortgage and city real estate taxes.
A quote from John Paulson, who is described by Forbes as the investment genius who made a fortune betting the subprime mortgage market would cause real estate to collapse, says it all: “If you don’t own a home, buy one. If you own one home, buy another one. And if you own two homes, buy a third and lend your relatives the money to buy one.”
3. Rates and Economic Indicators
Interest rates are at an all-time low—near 4%. Rates are projected to increase by 2012 to as much as 5.8%, according to projection rates from the National Association of Realtors.
The facts as to where the economy stands now don’t necessarily play into the idea that we are still in a recession. Liz Ann Sonders, Senior Vice President and Chief Investment Strategist for Charles Schwab & Co. said in their Investing Insights Magazine that:
• Leading economic indicators have turned back up for the second consecutive month.
• The savings rate is at a healthy 6%.
• Commodity prices are surging, suggesting strong global growth and trade.
• Home prices are up more than 3% from a year ago.
• Housing affordability is near all-time highs.
4. ‘Tis the Season
When it comes to Chicago real estate, the last quarter is probably the best time to purchase property, as most sellers on the market are very motivated. Most don’t want their homes on the market during the notoriously slow winter period.
The bottom line is that interest rates are low, inflation is low, and it is a buyer’s market. If you have a Realtor who knows the ins and outs of negotiating prices, then you’re in a great position right now. But these are variables that can—and will—change. Just as you cannot time the stock market, so too is it with the real estate market. There’s not much time to avoid coulda-woulda-shoulda down the line. The 4th quarter of 2010 is the time to commit if you’ve got an ample down payment, good FICO scores and steady employment.
To learn more about taking advantage of the economy now or to search Chicago homes for sale, contact me at (312) 498-5080 or by email at [email protected].